Canadian dollar boosted by M&A; bonds mixed

TORONTO, July 21 (Reuters) - The Canadian dollar rose 0.4 percent against the U.S. dollar on Monday, boosted by news of proposed foreign takeover offers for Canadian companies.

Domestic bond prices ended mixed, as a strong performance in the Canadian stock markets took away from a safe-haven bid for government debt, but that was offset after the bell by concerns about the American consumer spending, normally a bullish signal for bonds.

The Canadian dollar closed at C$1.0014 to the U.S. dollar, or 99.86 U.S. cents, up from C$1.0057 to the U.S. dollar, or 99.43 U.S. cents, at Friday’s close.

The currency got a boost after LS Power Equity Partners and Global Infrastructure Partners said they aim to buy Calgary-based TransAlta Corp (TA.TO) for C$7.8 billion.

The price is in Canadian dollars, and unless the private equity investors have a large stash of Canadian dollar holdings, they will have to buy the currency when the deal goes through.

M&A proposals were credited with a big chunk of the Canadian dollar’s 19.5 percent rise in 2007, but such activity mostly dried up near the end of the year as credit conditions tightened.

The TransAlta announcement comes on the heels of news last week that Royal Dutch Shell (RDSa.L) was going to buy Duvernay Oil Corp DDV.TO for C$5.9 billion.

Looking forward, investors will focus on upcoming data, starting with Canadian retail sales for May on Tuesday.

May data for manufacturing shipments and wholesale trade have already been released, with both handily beating expectations. Add to that the Bank of Canada’s talk last week about how an improvement in Canada’s terms of trade should boost wages and salaries, government revenues, and corporate profits, and there are some positive signs out there for the domestic economy, said David Watt, senior currency strategist at RBC Capital Markets.

“So you start thinking that the risks to the retail sales numbers are to the upside,” he said.

Inflation data for June is due Wednesday. The Bank of Canada said in its Monetary Policy Report Update last week that soaring oil prices would lift headline inflation as high as 4.3 percent in early 2009. Core inflation, which strips out volatile food and energy prices, is expected to stay within the central bank’s range of 1 to 3 percent.

BONDS MOSTLY LOWER

Bond prices ended mixed, as a rally in Canadian equity markets eased a recent safe-haven bid for government debt, but that was partially offset by soft earnings from American Express Co (AXP.N) after the bell.

The two-year bond rose 5 Canadian cents to C$101.05 to yield 3.164 percent. The 10-year bond slid 5 Canadian cents to C$103.60 to yield 3.808 percent.

The yield spread between the two-year and 10-year bond was 64.4 basis points, up from 61.2 basis points.

The 30-year bond rose 5 Canadian cents to C$114.28 for a yield of 4.146 percent. In the United States, the 30-year treasury yielded 4.621 percent.